“When a company
requires money for expanding their business or clearing off their debt, they go
public. Both IPO and FPO are processes that which they get money from investors
and fulfill their business objectives. IPO and FPO can be good investment opportunities,
We provide you an understanding of the purpose, risks, and benefits”.
What is an IPO?
Initial Public Offering, i.e. IPO, helps companies move beyond high-interest debt financing and get money from common investors. They use the money to expand their business growth, overcome debt, or meet operational expenses. Since the company's owners or primary shareholders leave a part of their stake, the process is known as 'IPO.' A company that is willing to go public needs to approach a merchant banker that helps them understand the listing process in the market.
After determining the price of each share, the lot of size, and the issue size,
the company files an application with the Securities & Exchange Board of
India (SEBI). After getting the approval from SEBI, the company starts the
money-raising process and was eventually listed on stock exchanges like the
National stock exchange or Bombay stock exchange.
What is FPO?
Today we will talk about, what is FPO? You all are known about IPO. FPO is like IPO, but IPO is Initial Public Offering i.e. when the company comes to the market for the first time to raise money, it is called IPO, and when any company, which is a listed company in the market wants to raise money again, it is called Follow on Public Offer or FPO, i.e. this company is already listed in the market, but now it wants more money.
The FPO or Follow on Public Offer is launched by an already listed company. The FPO can be exclusively for existing shareholders or new investors. The main purpose of launching an FPO is to enhance the company's equity base. The purpose of an FPO is the same as an IPO. A company uses the FPO money to expand its business or overcome the debt.
Investing money by looking at what in FPO or IPO?
What can be the difference between FPO and IPO? What you have to see in both the IPO and FPO is to see whether the company is making new shares or not and if the company is issuing new ones, then for what purpose it is doing. What is its use or the promoters of the company are selling their share? In the IPO, we recently saw the IPO of Pay Tm in which the old investors of Pay Tm were to be given an exit and hence those who had bought shares at a lower price.
Many experts say investing in an IPO is very easy because now you have the track record of the company in front of you and you don't have to do as much research. As much research as you have to do in IPO. But now look at FPO as well, just now the FPO of Yes Bank had come. Sometime back when State Bank took over its management control, the bank needed money, because if the bank does not raise the money. If they did have not their capital, they could not lend more than that, so the bank needed money to stay in business.
In that FPO, those institutions also invested money that had earlier been invested and money was taken from the public. But the company has issued new shares, many shares came from there, where management people or promoters or investors are selling their shares. As we mentioned in the IPO, they sold the stake to Paytm. Older investors sometimes do this in FPO's as well. For another reason, too many big investors and sensible investors do not consider the company doing FPO as good.
They believe that, If the company that starts the business cannot calculate how much money they will need for business, and how much money will run their work, after which they will start earning, and after that their business will go ahead with that earning. This means that the management is not fully aware of its business, but Ruchi Soya, which is a company, went in such a way that it was a submerged company and now Baba Ramdev's Patanjali took it to revive it from there. When the company was sinking because of all its old debts.
Patanjali has about a 99% stake in the
company, According to SEBI guidelines 99% stake of the company cannot remain
with anyone. The listed company's rule is that a 25% stake should be held by the
public. The maximum you can keep is 75%. Now there are two ways to keep it,
either you sell your 99% out of that you sell that much part so that it is
found to be 75%, or sell the shares to the public, so that the public's share
automatically increases and your share, if the ratio decreases, then it can be
both ways. If the company is increasing the stake by ratio with new.
Check money to ensure the stake of the public. The company's wealth has increased. The question is what you can see. It's your job to see that. Now you have to look very carefully at both the FPO and the IPO, where is this money going to the company which is investing money or to the promoter or the investor, and where the company is going to use it, Is the company use to going to pay off their debt?
Is the company going to use it to grow the business? Is the company going to use it
for working capital? Is the company set up a new plant? Suddenly his demand has
increased so much that he feels that if we suddenly increase our business then
we will be able to earn more. So it is important to pay this attention, and you
have to give this attention equally in IPO and FPO. Those who say that research
in FPO's needs to be reduced. They also need this attention in IPO and FPO.
Message to the Readers:
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